A V-shaped recovery depicts an economic situation where a severe downturn in the markets is met with an equally strong upturn in the markets. The V refers to the general shape a chart forms based on various data, such as unemployment, retail sales, industrial output, the shape of equity indexes or other metrics. Other recession recovery types often mentioned include the L-shape, U-shape, J-shape, W-shape and many others.

An L-shaped recession is a severe type of recession where there is be a prolonged period of flat or minimal improvements in the economy. An L-shaped recession could persist for years, essentially flatlining with years of stagnant growth. A common example of an L-shaped recession was the situation in Japan in the 1990s - an environment where loose lending standards led to a collapse in share prices and property prices. The economy started to rebound around 2003, and the time period leading up to 2003 is often referred to as the "lost decade" for Japan. This period was characterized by large bank failures, near 0% interest rates, rampant homelessness and increased government spending.

A U-shaped recovery is a more normalized recovery to a recession, where the economy gradually grows its way out of the recession. A W-shaped recovery generally starts out as a V-shaped recovery but another economic event may send the economy back down to previous lows which would be followed by another rebound to finish off the W-shape. The middle portion of the W-shape could also represent a significant bear market rally.

For more on recessions, take a look at our article Recession: What Does It Mean To Investors?

This question was answered by Joseph Nguyen.

  1. Why does unemployment tend to rise during a recession?

    Learn what a recession is, some attributes of an economy in a recession, and why the unemployment rate tends to have a domino ... Read Answer >>
  2. What's the best investing strategy to have during a recession?

    Figure out how to take advantage of recessions, what assets to buy and which ones to avoid. Recessions are where some great ... Read Answer >>
  3. Is cyclical unemployment always due to recessions?

    Learn about the mechanisms that cause cyclical unemployment and find out about the role recessions and downturns play in ... Read Answer >>
  4. What is a growth recession?

    A growth recession is an instance in which an economy grows at such a slow pace that it creates net unemployment, meaning ... Read Answer >>
  5. What causes recessions?

    Learn more about possible explanations of recessions in the business cycle, including how individual firms react to changing ... Read Answer >>
  6. What does it mean if something is described as "recession-proof?"

    Learn about the attributes of a recession, including the definition of a recession-proof item and examples of recession-proof ... Read Answer >>
Related Articles
  1. Investing

    Will China See an L-Shaped Recovery?

    According to a source quoted in the People’s Daily, China will experience an L-shaped recovery. Here's why.
  2. Managing Wealth

    Top 6 Recession Investing Myths

    Find out the truth about recessions and how they impact your portfolio.
  3. Insights

    6 Factors That Point to Global Recession in 2016

    We may be on the verge of another global recession.
  4. Insights

    Recession And Depression: They Aren't So Bad

    Financial downturns are part of the economic cycle and may have important long-term benefits.
  5. Insights

    Will Your Net Worth Be Affected By A Recession?

    Here's a look at how a potential recession could impact your net worth in a negative way.
  6. Insights

    What Causes A Recession?

    Many factors contribute to a recession, but the biggest one is inflation.
  7. Financial Advisor

    The Top ETFs For a Fast Recovery After a Recession

    Recession and recovery cycles are imminent in the markets. Here are the ETFs, which provide the best performance for a fast recovery after a recession.
  8. Insights

    5 Factors That Could Send The United States Economy Into A Double-Dip Recession

    A decline in consumer confidence and stock market correction could be enough to sink the economy again.
  9. Insights

    Do Declining Corporate Margins Point To Recession in 2016?

    Learn how declining profit margins have foretold nearly every recession of the past 50 years, and analyze whether they may signal economic contraction in 2016.
  10. Investing

    5 Long-Term Consequences Of The Recession

    Apart from the headlines about jobs, this recession is doing damage in other areas that goes unnoticed.
  1. V-Shaped Recovery

    A type of economic recession and recovery that resembles a "V" ...
  2. W-Shaped Recovery

    An economic cycle of recession and recovery that resembles a ...
  3. U-Shaped Recovery

    A type of economic recession and recovery that resembles a "U" ...
  4. Recession

    A significant decline in activity across the economy, lasting ...
  5. Business Cycle

    The fluctuations in economic activity that an economy experiences ...
  6. Rose-Colored Recession

    The unexpected optimism market observers sometimes experience ...
Hot Definitions
  1. Wealth Management

    A high-level professional service that combines financial/investment advice, accounting/tax services, retirement planning ...
  2. Assets Under Management - AUM

    The market value of assets that an investment company manages on behalf of investors. Assets under management (AUM) is looked ...
  3. Subprime Auto Loan

    A type of auto loan approved for people with substandard credit scores or limited credit histories. There is no official ...
  4. Racketeering

    A fraudulent service built to serve a problem that wouldn't otherwise exist without the influence of the enterprise offering ...
  5. Federal Debt

    The total amount of money that the United States federal government owes to creditors. The government's creditors include ...
  6. Passive Management

    A style of management associated with mutual and exchange-traded funds (ETF) where a fund's portfolio mirrors a market index. ...
Trading Center